Page 167 - DECO401_MICROECONOMIC_THEORY_ENGLISH

Microeconomic Theory

Notes
Illustration: Table 3 and Fig. 8.3 indicate the diminishing returns to a factor.

Table 3: Diminishing Returns to a Factor
Units of Labour Units of Capital Total Production Marginal Production

13 1 110 10
14 1 118 8
15 1 124 6
16 1 128 4

17 1 128 0
18 1 126 –2

By above table we can get that as the fixed capital uses with more units of labour, then the total
production increases in its decreasing rate and it falls after 5 unit. The marginal rate of variable inputs
th
means labour is decreased. It can be zero or negative after a period of time.
The Fig. 8.3 (A) indicates that the total production is increasing in a decreased rate and it starts
falling after point A. In Fig. 8.3 (B), the down MP curve indicates that the marginal production of
variable inputs is decreasing. This law can be stopped by rectifying the production technique.

Fig. 8.3

Diminishing Returns to a Factor
Y Y
(A) (B)
P MP MP declines ultimately
become zero or even
Total Product TP increases at Margninal Product negative
TP
diminishing rate
finally it starts
declining
Zero
O X O X
–ve
Units of Variable Factor Units of Variable Factor

Self Assessment

Multiple choice questions:
4. The changes and stability of factors depends upon .......................... of time.
(a) period (b) movement (c) curve (d) boundary
5. Some variable inputs are Raw Material, .......................... services etc.
(a) workers (b) servicemen (c) labour (d) none of these

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